One Idea for Job Creation: Short Time Compensation Vera Brusentsev University of Delaware Wayne Vroman The Urban Institute Big Ideas for Job Creation Conference Institute for Research on Labor and Employment University of California Berkeley, California June 16-17, 2011
Establishing STC Plans • State UI law must have STC provisions • Employer files application with UI agency • Plans must meet several requirements that vary by state • Minimum reduction for participants, e.g. 10 or 20 percent • Maximum reduction for participants, e.g., 40 or 50 percent • Maximum duration of plan, e.g., 26 or 52 weeks • May be requirements for maintaining fringe benefits • May be requirements regarding UI tax rates
Regression Analysis - 1 • Analysis of 17 states – 1989 to 2010 – annual data • Three recessionary periods • Dependent variable: STC equivalent weeks claimed as a percent of regular UI weeks claimed • Explanatory variables • State unemployment rate – TUR • TUR lagged • Linear trend
Regression Coefficients – STC Equiv. Weeks as a Percent of Regular Weeks, 1989 to 2010 Regressions with ETA-5159 data
Ratios of STC Measures to Regular UI Measures, 2000 to 2010 Source: Based on ETA-5159 data WBA ratio is the ratio of STC weekly benefits to regular UI weekly benefits. Average duration ratio is the ratio of average weeks of STC to regular UI average weeks.
STC Activities as a Percent of Regular UI Activities, 2000 to 2010 Averages Source: Based on ETA-5159 data
Canadian STC • Program established in early 1980s • Small scale but larger than in the U.S. • Recession related policy actions to increase STC • Increase plan duration, from 38 to 78 weeks in 2010 • Eased employer application requirements • Historically high utilization during 2009-2010
STC: U.S. and Canada Data assembled by authors. Data in thousands * Assumed ratio
STC (Kurzarbeit) in Germany - 1 • Longstanding and large scale program in recessions • Strong growth during 2008-2010 • Several enhancements during 2008-2010 • Increased plan duration • Reduced minimum number of workers • Government assumed bigger share of fringe benefit costs • Government advertised STC to employers
STC (Kurzarbeit) in Germany - 2 • Several measures cushioned employment during 2008-2010 • STC • Working time accounts • Working time “corridors” – uncompensated reductions in weekly hours • Reductions in overtime hours • Unemployment lower in 2010 than in 2007 despite the recession
STC in Italy • Cassa Integrazione Guadagni (CIG) • Program more than 50 years old • Three sub-programs • CIGO – Ordinary • CIGS – Extraordinary • CIGD – Dispensation • Programs differ in potential benefit duration and in the cost of fringe benefits to employers • Compensation based on hours not worked • High replacement rate (80%) but low benefit max.
STC: Germany and Italy Data assembled by authors. Data in thousands * Assumed ratio ** Part-year data
Regression Analysis of STC Usage U.S. regressions refer to states with STC programs.
Policy Menu for the U.S. to Increase STC Utilization • Advertise STC • Ease the application process • Have employers administer STC payments under reimbursable arrangements with UI • Noncharge (socialize) STC benefit costs • Eliminate charging of STC benefits against the claimant’s maximum potential UI benefit
Reed Bill: “Preventing Unemployment Act of 2011” • Temporary federal financing of STC benefits • States with STC – 3 years full federal financing • States with new STC – 2 years half federal financing • Grants to states for STC purposes • Upgrade and improve STC administration • Costs to implement a new STC program • Reward states for enrolling a benchmark number of employers • Increases federal promotion of STC • New model language for STC programs • Technical assistance to implement and administer STC • Survey states to identify impediments to STC • Allow employers in non-STC states to have federal administration